Two Weeks Packed With Good News

Zsófia Czifra

Friday, October 6, 2017

Although the past weeks’ macroeconomics calendar wasn’t exactly crowded, the Hungarian business environment received positive news from ranking institutions, the country’s CDS premium fell to a historic low, and Hungary also climbed several places up the global competitiveness list.

Once again, Hungary’s budget surplus showed a massive growth in the first half of the year, latest data published by the Central Statistical Office (KSH) reveals. Hungary posted a budget surplus of HUF 270.5 billion (EUR 868.7 million) in the first half of 2017, equivalent to 1.5% of GDP. The H1 surplus was up HUF 183.9 bln or one percentage point of GDP compared to the same period in 2016.

The government has said in the light of this that it will continue to pursue a stable budget, keeping the deficit low. This can be achieved by further reducing the public debt, economy ministry state secretary Péter Benő Bánai said, commenting on the data.

He noted that the statistical authorities of the various European Union member states provide Eurostat with data on their budget deficits and public debts twice a year. Eurostat and KSH have, after some to-ing and fro-ing, eventually reached a professional consensus and the KSH has made some methodological modifications to its calculations, he said.

These changes, however, have not affected the positive developments concerning the budget deficit or the reduction in public debt. The public debt at the end of 2016, based on National Bank of Hungary data, came to 73.9% of GDP.

Deficit Achievable

Hungary’s Fiscal Council delivered its opinion on the state of this year’s budget on October 2, stating that budget revenue and expenditures were in line with the pro-rata targets in the first half, and it also said that the deficit target of 2.4% of the GDP for 2017 can be achieved.

This positive mood was further justified by the fact that the five-year credit default swap (CDS) premium for Hungary, for the very first time in history, fell below the 100-point benchmark to 98 points, which shows that market investors appreciate the achievements of the Hungarian economy and are upbeat concerning the country’s outlook, the government insists.

In May 2010, this indicator was at 195 basis points, and had skyrocketed up to 730 points by the beginning of 2012. “Thanks to potent crisis management and a pro-growth economic policy, the CDS premium was back to around 200 points by the middle of 2014 and to 98 points today, falling below the 100-point mark,” the Ministry for National Economy said in a statement posted on the government’s website, kormany.hu.

“Economic growth has not generated debt; on the contrary: the government debt-to-GDP ratio has been firmly below the 3% threshold in recent years, and the indicator has improved more markedly than others in the EU – thanks to a prudent fiscal policy, sensible debt management and economic expansion,” the ministry added.

More good news for the Hungarian economy was that credit insurer Coface had upgraded Hungary at the end of September. The institution reasoned its decision with the economic growth the country had demonstrated lately and the improvement of the business environment. According to the fresh “A3” rating, Coface considers the risks of the Hungarian business sector to be acceptable, and slightly down from the previous “A4” rating.

Consumer Confidence

It is not only investor confidence that has improved; the latest retail trade figures also show that households are tending to purchase an increasing amount of durable consumer goods, which is a sign of growing consumer confidence.

According to preliminary retail sales data released by KSH, in August the volume of sales grew by 4.6% year-on-year, and thus the upward sales trend, in place for 50 months, has continued. Retailers are expecting further increases: in the second quarter of 2017, the volume of investment in the sector was up by 14% year-on-year.

As if all that is not enough good news for a fortnight, Hungary’s competitiveness has also improved, as the World Economic Forum’s latest Global Competitiveness Index reveals that the country climbed nine places on the list. Hungary now takes 60th place, returning to levels it held previously (63rd in 2015, 60th in 2014). Improvements in technological readiness, financial markets and the business and innovation environment lifted Hungary in the ranking. Among the most problematic factors for doing business were the inadequately educated workforce, corruption and tax rates.

The index investigates the competitiveness of 137 countries, based on 114 sub-indices. Minister for National Economy Mihály Varga said that the scale of improvement was spectacular compared to the progress achieved during the past decade, and this was the largest year-on-year leap forward on the ranking, which he called one of the most prestigious world-wide. (Last year, when it lost places, the government had not been so complementary.)

Achievements have confirmed that the choices made by the National Competitiveness Council, which was established last spring, concerning economic fields and reform proposals capable of substantially boosting the country’s competitiveness in the short-term and longer, had been right, the minister stressed.

CDSys yesterday reported revenue of HUF 1 billion for 2013, an over 50% increase over the HUF 655 million posted in ’12. Further, company representatives have stated that they “consider the Hungarian market to be ready to reach W. European levels in terms of information safety...”

The cost of insuring Hungary's sovereign debt against default fell to a low for the year on markets in London on Wednesday after official negotiations on precautionary financial assistance from the International Monetary Fund and the European Union started in Budapest on Tuesday.

Default insurance costs on Hungary's sovereign debt flirted with the 600bps threshold on Friday, the highest level since late January, driven up by renewed market fears over the prospects of a new IMF/EU financing deal.

Default insurance costs on Hungary’s sovereign debt reached a low for the new year in markets in London on Thursday as investors saw hope for a an agreement on financial assistance for the country from the International Monetary Fund and the European Union.